Diversity in financial advice: Recruiting priority or PR play?

The financial advice industry, with roughly 320,000 brokers and advisers selling and recommending products, is desperate to appear more diverse. The call to diversity is all around the industry. There are more women adviser conferences than you can shake a stick at, and last week, Morgan Stanley was promoting and sponsoring the Black Wealth Summit.

These are terrific programs, no doubt, and give time and attention to under-represented segments of the industry. But it's not enough. As I noted over the summer, to be truly diverse, the advice industry needs a true tally of its advisers: How many are men, women, Black, Latino, Asian and LGBTQ.

This is an industry where data reigns, and each firm knows how diverse it is or isn't, but won't currently share the answers. That's a shame and it impedes progress.

Calls for racial audits at all types of firms have emerged following the racial injustice protests that swept across the U.S. last year and President Joe Biden’s signing of an executive order to advance equality. Citigroup Inc. is the first of the Wall Street banks to agree to a racial audit.

Within the financial advice industry, how can its professionals know whether they are making progress in hiring women and minorities unless there is an independent auditor and holder of the data, like a consulting firm, or dare I say it, a reputable trade newspaper with its own data team?

Instead, individual firms have taken to releasing information about the numbers of women and minority brokers piecemeal. That type of flimsy effort does not meet the mandate to diversify, and therefore strengthen, this industry.

A recent example of the financial advice industry blowing its own diversity horn are the press releases or announcements that accompany a firm when it hires or recruits a new set of advisers who are led by women.

Are these announcements an indication that targeting women teams of financial advisers is an effective recruiting strategy? Are firms offering more competitive recruiting bonuses to women to try and boost diversity and puffing out their chests a bit when they have some success?

Such press releases typically read, "Women-led firm leaves such and such company and joins this one," or "Women-led group launches new practice." Promoting the hiring of individual groups does not address the wider problem of needing to bring more women and minorities into the business. That task requires a clear commitment to training financial advisers, which is risky and expensive, and therefore unwelcome at many firms.

Heavy-handed marketing, particularly when it's about people, gives me the heebie-jeebies. Such press releases send the wrong message. Sure, firms can tout diverse hiring, but why not include information about the total number of women or minority advisers at the firm in such releases? That would provide a much fairer picture.

Per the Bureau of Labor Statistics, the portion of personal financial advisers who are women has increased from 31.6% in 2016 to 34% last year. Industry executives and recruiters peg the number of women advisers to have increased by a few percentage points in the past decade to about 25% of the total working right now.

"I don’t think the percentage of women advisers in the industry has moved much," said Danny Sarch, an industry recruiter. "And it's tougher to train new advisers anyway, regardless of gender or background. And it's not like the number will go up unless firms are training."

"That said, I do think women advisers in the past had a stereotype of being tougher to move or recruit to a new firm because they were more loyal," Sarch said. "That's probably true in my experience."

"But women have become more prominent in teams, and wirehouses are shrinking," he said. "If a firm publicizes that a women-led team has joined, maybe they will get traction there. But it’s still a long way from being women and men advisers splitting 50-50, like the general population."

"You can’t correct 50 years of issues with hiring and bias and sexism, added to the last couple decades making it harder to train advisers in general," Sarch said. "So how can you change the number of women advisers?"